In a press release today, Contango Oil & Gas Company announced an updated capital expenditure budget of $85 million for the fiscal year ending June 30, 2011.  The company plans to drill four wildcat exploration wells in the Gulf of Mexico at a cost of approximately $15 million each.  In addition, fifteen on-shore wells will be drilled at a cost of approximately $1.5 million each as part of the company’s Patara joint venture agreement.  Successful discoveries could result in additional increases to the capex budget.

Contango’s announcement amounts to an aggressive increase in capex plans compared to preliminary plans that CEO Ken Peak described in late July.  At that time, the preliminary capex budget for fiscal 2011 was approximately $50 million which included twelve on-shore wells as part of the Patara venture along with two offshore wells planned for November 2010 and January 2011.  In July, Mr. Peak also announced that the company continues to make purchases under a previously approved $100 million share repurchase program and may consider a one-time special dividend at some point during the fiscal year.

With Contango’s current production of 89 million cubic feet of natural gas per day and 2,400 barrels of oil per day, the company is generating approximately $600,000 in revenues each day, or $18 million per month.  Free cash flow is approximately $15 million per month on a pre-tax basis.  Given the fact that the company has no debt, $40 million in net cash, and $50 million of borrowing capacity, it appears that Contango is well positioned to execute on the capex plans for fiscal 2011 while continuing to take advantage of share price weakness to repurchase additional shares.

Mr. Peak will make a presentation on Wednesday, August 25 at the EnerCom Oil & Gas Conference.  Click here for information regarding the webcast.

Disclosure:  The author of this article owns shares of Contango Oil & Gas Company

Contango Announces $85 million Capex Budget for Fiscal 2011
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